Does it Pay to Harvest Cotton this Year?

Todd D. Davis
Extension Ag. Economist

With a projected state average yield of 369 pounds per acre, the 2002 cotton crop will likely be the worst crop since 1983.  With such a low projected yield, producers need to evaluate if the per acre yield is large enough to cover harvest and post-harvest costs. 

You need to answer the following four questions when making the decision to harvest cotton this fall. 

1.)    What costs will you save by not defoliating or harvesting cotton?

2.)    What revenue will you lose by not harvesting cotton?

3.)    What are the additional costs associated with not harvesting cotton?

4.)    What additional revenue will you obtain by not harvesting cotton?

Table 1 lists the per acre defoliation and harvesting costs based on Clemson University Crop Enterprise Budgets (EER 203).  The enterprise budgets reflect average production practices and expected costs at harvest and should be used only as a guide in making this decision.  You should adjust the costs to reflect the conditions for your farm.

Table 1.  Cotton Defoliation and Harvest Costs.

Aerial Application ($/acre)	$3.50
Defoliant ($/acre)	$13.94
Cotton Picker ($/acre)	$28.52
Cotton Module Builder ($/acre)	$1.68
Boll Buggy ($/acre)	$4.04
Cotton Check-Off fee ($/lb)	$0.0127
Hauling ($/acre)	$5.00
Ginning -- net of seed ($/lb)	$0.0274

Source:  Clemson University Crop Enterprise Budgets.

Cost Savings from Not Harvesting

The cost savings by not harvesting cotton depend upon where you are in the production process.  If you have not applied a defoliant, you would save on all of the costs listed in Table 1.  If you have applied a defoliant, you would not include the aerial application fee and defoliant cost in the analysis. 

Lost Revenue from Not Harvesting

The lost revenue from not harvesting depends upon the expected cash price and expected loan deficiency payment at harvest.  You also need to consider how the cash price may be discounted based on the quality of the crop.  As of this writing, the expected cash price is $0.4185 per pound and the expected loan deficiency payment is $0.1558 per pound.  You should adjust the discount based on the quality of your crop, perhaps by as much as $0.06-0.08 per pound.

Additional Costs from Not Harvesting

Include any costs in this category that you would incur by not harvesting cotton. For example, if you plan on disking the crop under, include the variable cost of disking the crop.  Only include a cost in this category if it is something that you would not normally incur if you would harvest the crop. 

Additional Revenue from Not Harvesting

Include any revenue that you would receive by not harvesting the crop.  DO NOT include insurance proceeds in this category, as you would receive an indemnity regardless if the crop is harvested or abandoned.

Making the Decision

The decision to not harvest the cotton crop depends on whether the cost savings and additional revenue from not harvesting the crop is greater than the lost revenue and additional costs of abandoning the crop.  Consider the following example.

Example 1.  The December 2002 Cotton futures price is $0.4535, the expected cash basis is -$0.035, the quality discount is $0.08, and the loan deficiency payment is $0.1558 per pound.  The expected yield is 180 pounds per acre and you have not applied defoliants.  Should you harvest this crop?

Table 2.  Partial Budget for the Harvesting Decision in Example 1.

Costs of Not Harvesting	$/Acre		Benefits from Not Harvesting	$/Acre
Additional Costs	$0.00		Additional Revenue	$0.00
Reduced Revenue			Reduced Costs
Lost Cash Sales	$60.93		Aerial Application	$3.50
Lost LDP	$28.04		Defoliant	$13.94
			Cotton Picker	$28.52
			Cotton Module Builder	$1.68
			Boll Buggy	$4.04
			Ginning (net of seed)	$4.92
			Hauling	$5.00
			Cotton Check-Off	$2.29
Total Additional Cost and Reduced Revenue	$88.97   (A)		Total Additional Revenue and Reduced Cost	$63.89   (B)
Net Change in Profit  (B-A)				-$25.08

The cash sales price, adjusting for the quality discount is $0.3385 per pound ($0.4535-0.035-$0.08).  The lost cash market revenue is $60.93 per acre (180 x $0.3385) and the lost LDP is $28.04 per acre (180 x $0.1558).  You would be giving up $88.97 per acre by not harvesting the crop, indicated by the letter A in Table 2.  The cost savings by not harvesting is $63.89 per acre, indicated by the letter B in Table 2.  The net change in profit by not harvesting the crop is -$25.08 per acre.  This means that you would be better off by harvesting the crop, as the revenue from the cash market and LDP will pay for the defoliation, harvest and post-harvest costs. 

Crop Insurance

It is crucial that you talk with your crop insurance agent before you decide to abandon your cotton crop.  Your insurance agent can advise you on the procedures you will need to follow to verify your yield and to collect an indemnity. 

Help with Making this Decision

A Microsoft Excel spreadsheet is posted on the Clemson University Agricultural and Applied Economics web site at http://cherokee.agecon.clemson.edu/extindex.htm, to help you with this decision.   You can adjust the yield, prices, and costs to reflect your farming operation.  Contact your local extension office for help with this decision.